THE CFA
PROGRAM
®
Where Theory
Meets Practice
THE CFA PROGRAM
On 15 June 1963, 284 senior analysts sat for the first CFA examination in various cities
throughout the United States and Canada. During the initial year, the equivalent of
the current Level III exam was the only examination required to earn the CFA charter.
According to C. Stewart Sheppard’s The Making of a Profession: The CFA Program (1992),
“... 268 were successful, and those who failed attributed it mainly to their lack of
adequate preparation” (p. 8).
The program has evolved greatly since its inception. It began with
a focus on equity security analysis in a US setting and emphasized
ethical and professional standards. Today’s CFA Program covers a
much broader Candidate Body of Knowledge™ (CBOK™), as shown
in Figure 1, which reflects the investment profession’s continuing
evolution. Although equity security analysis and ethical and
professional standards remain prominent aspects, the program
now also includes fixed-income analysis, alternative and derivative
investments, portfolio management, and several other topics—all
set in a global context. The current program is best described as a
self-study, distance-learning program with a generalist approach
to investment analysis, valuation, and portfolio management.
The program continues to emphasize the highest ethical and
professional standards.
This article describes the CFA Program process in detail. You will
learn how the CBOK and curriculum are established, how the
examinations are developed and administered, and finally, how
the examinations are graded and how the minimum passing score
is determined. After reading this article, we hope that you will
conclude that the current CFA Program enhances the value of the
CFA charter. Past CFA Institute Chair Frank Reilly, CFA, has aptly
described the charter as the “crown jewel” of CFA Institute.
FIGURE 1
CFA PROGRAM CANDIDATE BODY OF KNOWLEDGE (CBOK)
Knowledge/Comprehension
Application/Analysis
Synthesis/Evaluation
LEVEL I
LEVEL II
LEVEL III
ETHICS
ETHICS
ETHICS
Investment Tools
Quantitative Methods
Economics
Financial Reporting & Analysis
Corporate Finance
Asset Classes
Equity Investments
Fixed Income
Derivatives
Alternative Investments
Portfolio Management & Wealth Planning
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
2
Practitioners at Every Step of the Process
FIGURE 2
THE CFA PROGRAM PROCESS
Education Advisory Committee
GLOBAL
PRACTICE
ANALYSIS
CANDIDATE
BODY OF
KNOWLEDGE
CURRICULUM
Council of
Examiners
Member
Volunteers
Member
Volunteers
Board of
Governors
EXAMINATIONS
GRADING
STANDARD
SETTING
MINIMUM
PASSING SCORE
Overview
The CFA Program’s success relies on active practitioner involvement.
Practicing CFA charterholders are involved at every stage of the
process, as Figure 2 illustrates. The program is not an academic
one—rather, it focuses on the global investment management
profession from a practitioner’s standpoint. The CFA Program
process begins with a global practice analysis—discussions with
subject matter experts, industry stakeholders, and practitioners,
followed by a survey of current practicing investment management
professionals—to develop the CBOK, which is the program’s
foundation. The Education Advisory Committee (EAC), a group of
prominent volunteer CFA Institute members, leads this process. With
the CBOK determined, CFA Institute staff, members, and consultants
design the curriculum with EAC oversight of the process. The Council
of Examiners (COE)—consisting of only CFA charterholders—then
directs the development of the CFA examinations by the CFA exam
writing team (a larger group of CFA charterholders who write the
examination questions) based on the curriculum.
After administration of the examinations, CFA charterholders from
around the world arrive in Charlottesville, Virginia, USA, to grade the
constructed response (essay and problem) portions of the Level III
examinations. Multiple-choice and item set portions of the Levels I, II,
and III exams are machine graded. With grading concluded, additional
groups of charterholders convene to “standard set” the examinations.
Charterholder members of the CFA Institute Board of Governors then
determine the minimum passing score for each exam level.
Levels I and II candidates receive their examination results at the
end of July (June examination) and at the end of January (December
examination for Level I only); Level III candidates receive their results
in early August. Only after passing the Level III exam and fulfilling the
CFA Program’s work-experience requirement can a candidate use the
coveted CFA designation.
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
3
were selected to represent the profession’s diversity with respect to
geography, work setting, and professional role. The resulting inventory
was converted to a survey, and a total of 16,103 surveys were mailed
to a global sample of charterholders. The results confirmed the work of
the panels and committees in identifying the most critical knowledge
areas for investment management professionals. This practice
analysis guided the development of the CFA Program curriculum and
examination specifications.
FIGURE 3
BODIES OF KNOWLEDGE
CIPM Body of
Knowledge
Private Wealth
Management
Body of
Knowledge
Candidate
Body of Knowledge
Global Body of Investment Knowledge
Curriculum Development
Global Practice Analysis
Many credentialing agencies use standardized examinations to ensure
that candidates demonstrate sufficient competence in their particular
fields of practice. The claim that a candidate’s performance on an
exam provides a meaningful indicator of professional competence
depends on evidence that supports the exam’s job relatedness or
content validity. The Standards for Educational and Psychological
Testing state that a practice analysis study—a compilation and
confirmation of the knowledge and skills required for competent
professional practice—forms the basis for establishing the content
validity of credentialing examinations. CFA Institute has worked closely
with psychometricians (experts in testing and measurement) to
develop and refine a high-quality practice analysis.
The CFA Institute Board of Governors first commissioned a practice
analysis in 1995; previously, committees of charterholders developed
the CBOK. In 2000, the board commissioned Knapp & Associates
International, Inc., to assist staff in conducting a second practice
analysis.
A series of panels and committees consisting of prominent investment
practitioners created an inventory of critical responsibility and
knowledge areas. These panels of CFA charterholders around the world
CFA Institute began its third formal practice analysis in late 2004. As
with the processes in 1995 and 2000, regional expert panels were
convened to define a CBOK that reflected the knowledge, skills, and
abilities (KSAs) required of a generalist investment practitioner with
four years of experience. A new feature of the third practice analysis
was the addition of groups of senior investment management
professionals, known as employer panels, to define the KSAs expected
of new charterholders. The expert and employer panels were followed
by a broad survey of all active CFA charterholders in February
2006, and a revised CBOK based on the results of the new practice
analysis became available in November 2006. The 2008 curriculum
and examinations fully incorporated this revised CBOK. In 2007, the
EAC decided to conduct the practice analysis continuously rather
than every five years to ensure that the CBOK continues to reflect
the investment management industry’s ever-changing demands. A
continuous process allows for more real-time inputs while maintaining
the CBOK’s high standing. The continuous practice analysis process
also incorporates significantly more member input in the initial phase,
using social media and other online venues to collect input from
investment management professionals around the world. In addition,
the focus was expanded to include the development of a Global Body
of Investment Knowledge™ (GBIK™).
The GBIK is a comprehensive outline of knowledge for the investment
management profession. Investment management professionals can
use GBIK concepts at any stage of their career—novice through expert,
and generalist or specialist. The GBIK includes mainstream and frontier
concepts based on research that has been or is being debated, and
it may encompass views well outside the mainstream. CFA Institute
staff use the GBIK to guide all CFA Institute lifelong learning activities,
including publications, conferences, and other continuing education
programs. CFA Institute also develops the CBOK for the Certificate
in Investment Performance Measurement (CIPM) Program as well
as specialty bodies of knowledge for those members practicing in
investment specialties such as private wealth management
(see Figure 3).
In September 2009, the GBIK was published for the first time. This
revised GBIK reflects many new and enhanced topics identified
through the continuous practice analysis process. Since then, the
GBIK has been updated annually to reflect the changes identified by
practitioners through this process. The current GBIK is available on the
CFA Institute website (www.cfainstitute.org/gbik). In 2015, a revised
CBOK topical outline was published.
In response to the 2008 global financial crisis, the EAC expanded
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
4
TABLE 1
TOPIC AREA WEIGHTS
Topic Area
Level I
Level II
Level III
15
10-15
10-15
Quantitative Methods
12
5–10
0
Economics
10
5–10
5–15
Financial Reporting and Analysis
Ethical and Professional Standards
20
15–20
0
Corporate Finance
7
5–15
0
Equity Investments
10
15–25
5–15
Fixed Income
10
10–20
10–20
Derivatives
5
5–15
5–15
Alternative Investments
4
5–10
5–15
7
5–10
40–55
100
100
100
Portfolio Management and Wealth Planning
Total
Note: These weights are intended to guide the curriculum and exam development processes. Actual exam weights may vary slightly from year to year.
Please note that some topics are combined for testing purposes.
the scope of the practice analysis process to include input from
university faculty, exam preparation providers, regulatory bodies, and
policymakers. The EAC determined that establishing a partnership
with these bodies will ensure that the GBIK and CBOK are relevant to
investment management professionals and contribute to a wellfunctioning capital market. “Widening the funnel” into practice analysis
has resulted in a more robust exchange of ideas in the panel sessions.
Since 2007, these expert and employer panel sessions have taken
place in 32 cities in the three CFA Institute geographic regions—the
Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific
(APAC). The discussions at these panel sessions have identified
revisions necessary to maintain the relevance of the GBIK and CBOK.
Candidate Body of Knowledge and Topic Area Weights
A major outcome of the practice analysis is an updated CBOK. The
CBOK reflects the scope of knowledge needed for basic competence
in investment management, with “basic competence” defined as the
baseline level of knowledge and skills required to perform professional
responsibilities in an effective and ethical manner.
The CBOK has been gradually broadened from the body of knowledge
contained in the initial CFA Program curriculum, which focused
primarily on (1) investment goals, investment timing, and portfolio
balance; (2) institutional investing; (3) ethical issues; and (4) review
of securities regulations. Since then, entire topic areas—such as fixed
income, derivatives, and alternative investments—have been added
to keep pace with the changing profession. Because the CFA Program
is global in scope and laws and regulations differ among countries,
the CBOK does not include specific country securities regulations
but instead includes, for example, a reading on the economics
of financial market regulation. To prepare CFA charterholders for
the global marketplace, the CBOK does reflect globally accepted
reporting standards, such as the International Financial Reporting
Standards (IFRS), as well as common tax and legal regimes that
affect investment decision making, all of which are illustrated through
examples in local jurisdictions.
In the CBOK, a total of 10 topics are grouped into four functional areas,
as shown in Figure 1: ethical and professional standards, investment
tools, asset valuation, and portfolio management and wealth planning.
The CFA examinations have always focused primarily on testing
investment tools at Level I, asset valuation (investment analysis)
at Level II, and portfolio management at Level III. This structure is
the logical progression of the investment process. A practitioner
needs to master investment tools to apply those tools to asset
valuation, and assets need to be valued and then analyzed in a
risk–return portfolio context. The sequence also corresponds to the
path that typical candidates might follow as they progress through
their careers. Because integrity must be exercised throughout the
investment process, CFA Institute emphasizes ethical and professional
standards at each level. Although all CBOK topic areas relate directly
to competence in investment management, they have differing
degrees of significance for professional practice. Some areas may be
more important or used more frequently than others in day-to-day
responsibilities. Consequently, based on the results of the practice
analysis, study weights are assigned to each topic area to indicate
relative emphasis within the CBOK. In turn, these weights, shown in
Table 1, guide the development of the curriculum and examinations.
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
5
The Curriculum Process
The CFA curriculum constitutes the study material that forms the
basis for the examination questions. The curriculum topics are those
CBOK elements identified in the practice analysis.
The curriculum’s purpose is to prepare CFA candidates for the
investment management profession and to facilitate their preparation
for the exams. Each year, more than 250 investment professionals
around the world participate in the annual curriculum review and
development process.
The CFA Program is fundamentally different from typical university
programs. In the program’s early days, the curriculum consisted of
textbooks, professional journal articles, commissioned readings,
cases, and research analysts’ reports.
In 1996, CFA Institute significantly improved the curriculum’s
effectiveness by adding learning outcome statements (LOS) at Level
III. LOS were then incorporated at Levels I and II in the following year.
The purpose of the LOS is to enhance candidate learning while
guiding examination writers (the COE) as to what examination
questions the curriculum material will support. The LOS serves as the
link among the CBOK, the curriculum, and the examination, helping
candidates prepare for the exacting standards of the investment
management profession.
Reading-specific LOS help candidates frame the knowledge they must
gain from each reading. Each LOS contains the words “The candidate
should be able to...” followed by command words (such as “calculate,”
“describe,” and “analyze”) that indicate the knowledge and skills
candidates will be expected to demonstrate on the examinations and
in their professional positions.
The COE and CFA exam writing team write examination questions
within the bounds of the LOS, often integrating more than one
LOS into a question. The COE views the LOS as a contract with the
candidates. If candidates can do what the LOS indicate, they should
be well prepared for the examinations. It is the job of the CFA Institute
staff, with process oversight of the EAC and the input of members,
to ensure that the readings enable candidates to achieve the
appropriate mastery of the skills reflected in each of the LOS.
The following is an example of the Level II reading-specific LOS from
“Multinational Operations,” by Timothy S. Doupnik and Elaine Henry,
CFA (CFA Institute, 2013).
The candidate should be able to:
a) d
istinguish among presentation (reporting) currency, functional
currency, and local currency;
b) d
escribe foreign currency transaction exposure, including
accounting for and disclosures about foreign currency
transaction gains and losses;
c) analyze how changes in exchange rates affect the translated
sales of the subsidiary and parent company; and
d) c
ompare the current rate method and the temporal method,
evaluate how each affects the parent company’s balance
sheet and income statement, and determine which method is
appropriate in various scenarios.
Curriculum Innovations
In response to candidate demand, CFA Institute began phasing in a
customized format for delivering the curriculum for the 2006 exam.
CFA Institute sequenced the LOS and assigned readings in conformity
with the study sessions and assembled those components into
self-contained volumes. The improved packaging offers candidates a
user-friendly and integrated curriculum that reduces candidate costs
and facilitates examination preparation.
The latest curriculum delivery innovation was the release of the
curriculum e-book in 2010. The e-book provides access to the
curriculum in digital format.
Historically, the curriculum was drawn from existing professional and
academic publications. CFA Institute advisory committees, however,
recognized the disadvantages of these off-the-shelf sources. For
instance, college texts are often overly academic and “countrycentric,” and practitioner texts are rare and often inappropriate for a
generalist. Journal articles often presume more knowledge than is
required of a generalist. Perhaps the greatest weakness in off-theshelf products is that they often contain a significant amount of
material outside the CBOK and sometimes omit important concepts
included in the CBOK. As a result of these disadvantages, the decision
was made by CFA Institute to begin developing curriculum readings
specifically for the CFA Program. Written by investment practitioners
and leading academics, these readings balance conceptual rigor
with the application perspective of financial analysts and portfolio
managers. As of July 2015, almost 96% of the CFA Program curriculum
consists of material commissioned by CFA Institute.
Curriculum development is not a recent phenomenon at CFA Institute.
In The Making of the Profession: The CFA Program, Sheppard notes the
“marked paucity in 1965 of relevant study guide materials” and states,
“Gone were the days when reliance could be placed on general
textbooks and selected articles” (p. 10). Since that time, CFA Institute
(then known as the Institute of Chartered Financial Analysts and
later as the Association for Investment Management and Research)
has worked closely with many subject matter experts, authors, and
publishers to customize materials for the CFA Program.
A cornerstone of the CFA curriculum has been the book Managing
Investment Portfolios, edited by John L. Maginn, CFA, and Donald
L. Tuttle, CFA (1983). In 2006, the third edition of this seminal work
was edited by Dennis W. McLeavey, CFA, and Jerald E. Pinto, CFA,
in collaboration with the two original editors, and it remains the
foundation of the portfolio management curriculum. Beginning in
2000, CFA Institute commissioned a series of books to provide
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
6
curriculum content in corporate finance, fixed income, derivatives,
quantitative methods, financial reporting and analysis, and equity
valuation. Since their introduction to the curriculum, many of these
readings have been revised or replaced in response to advances in
the investment management industry. In addition, the Levels I and II
fixed-income readings (2013), Levels I and II economics curriculum
(2012), Level I derivatives curriculum (2015, with updates of Level II
planned for 2016), and Level III behavioral finance readings (2011) were
commissioned to replace externally developed material.
The following principles have been established for CFA Program
curriculum development. The material must be:
•
•
•
•
•
•
faithful to the practice analysis and CBOK;
valuable to members, employers, and investors;
globally relevant;
generalist (as opposed to specialist) in nature;
appropriate for a new charterholder;
replete with examples and practice problems both within
and at the end of readings;
• pedagogically sound in a self-study framework; and
• testable.
A distinguishing feature of the curriculum development at CFA
Institute is the extensive review process that all products must
undergo. Practicing investment management professionals review
each reading or article to ensure that it is conceptually correct and
relevant. Practitioners from all over the world participate in this
process. Frank Fabozzi, CFA, a long-time contributor to the CFA
Program curriculum, commented, “Of all the books I have authored
(more than 100), these books have been the hardest to write... The
reviewers made me an almost paranoid writer, as every word and
statement was scrutinized to make sure it would be clearly
understood by the CFA candidate.”
CFA Program Partners are a group of high-profile, globally diverse
academic institutions that incorporate the CBOK, including the CFA
Institute Code of Ethics and Standards of Professional Conduct,
into their degree programs and support the CFA Institute’s strategic
objectives. Status as a CFA Program Partner provides a signal to
potential students, current students, and the marketplace that the
university’s curriculum is closely tied with professional practice and
is well suited to preparing students to sit for one or more levels of
the CFA exams. In 2012, CFA Institute began more broadly recognizing
schools that incorporate the CBOK into their degree programs with the
University Recognition Program. To find out more about CFA Institute
university outreach initiatives, visit the CFA Institute website
(www.cfainstitute.org).
Candidate Products
Creating a custom curriculum allowed CFA Institute to move away
from a series of textbooks and begin producing only those readings
that it required candidates to study. To further provide an effective
and convenient learning experience, CFA Institute began developing
a suite of candidate study products. Candidates have consistently
asked for more practice problems to practice by “doing,” reinforce
concepts, test retention of concepts, and see how concepts might
be tested on the live exam. So, candidates now have access to a
large digital repository of practice problems through a question bank
organized by topic—typically, 30 to 40 multiple-choice questions
or one or two item sets, depending on topic weight. Topic-based
assessments allow candidates to make effective use of the practice
problems before having worked through all topics.
Candidates in a self-study program must manage their study time.
To help candidates internalize the time commitment and devise a
plan for consistently studying, CFA Institute developed a web-based
“study planner” that uses topic-area weights (adjusted for differences
in curriculum weights) compared with the time available for study
before exam day to suggest completion dates for each topic. The
planner dynamically adjusts when candidates are running ahead of or
behind schedule.
A mobile app offers access to the curriculum, the practice tests
(question bank), and study planner. The app is included with exam
registration at no additional charge.
Examination Development
When the first CFA charters were awarded in 1963, candidates had
to successfully complete a single four-and-a-half-hour examination
to earn the charter. The exams were given in two separate sessions
of two hours and fifteen minutes. In 1964, all three levels of the
examination were administered to 1,732 candidates in the United
States and Canada. In 1968, each exam consisted of two sessions
for a total of five hours and fifteen minutes. The year 1981 marked the
first time that the examinations totaled six hours in length. Since that
time, CFA Institute has retained the current format of two separate
three-hour sessions for each of the three exam levels.
Examination Content
A commitment to excellence in the development of the CFA
examinations has been the program’s hallmark. The COE and CFA
exam writing team write the examinations with the assistance of CFA
Institute staff. In 1963, the original COE consisted of four US academic
experts and the president of the Montréal Stock Exchange. Today,
more than 100 CFA charterholders from around the world serve on the
COE and CFA exam writing team. The team consists of approximately
70% practitioners and 30% academics. Another large and globally
diverse group of charterholders is involved in an extensive review
process. CFA exam writing team members are recruited based on
their expertise in different areas of investment practice and CFA
curriculum topics. Prospective members are often identified based
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
7
on other services supporting the CFA Program (e.g., standard setting,
curriculum development, exam review, and grading).
CFA Institute follows the professional advice of expert
psychometricians on all aspects of testing, including exam design,
question structure, and exam performance evaluation. CFA Institute
uses three question formats on its examinations. Selected response
questions are simple multiple choice at Level I and item sets at Levels
II and III. Item sets are sets of six multiple-choice questions, and each
set relates directly to case information provided in narrative and/
or tabular form. All selected response questions have three answer
choices. Constructed response (essay) questions appear only on the
Level III exam. These formats support the primary focus on knowledge
and comprehension at Level I, application and analysis at Level II, and
synthesis and evaluation at Level III. Given the nature of the profession
and the targeted learning outcomes, candidates are asked to analyze
financial data and apply investment concepts at all three levels.
Each exam development cycle starts nearly a year in advance of
the examinations. Each cycle begins with COE leaders meeting to
set the guidelines for the next examination. These guidelines are
disseminated to CFA exam writing team members, who then begin
drafting questions before the first of a series of team meetings. To be
included on the CFA examination, a question must relate directly to
one or more LOS in the curriculum. Exam writers ensure candidates
will be able to answer any question solely from curriculum content
and practice problems. CFA exam writing team members are also
encouraged to use assigned curriculum problems for ideas on
question structure and content. The CFA exam writing team develops
more questions than needed so that the COE can select the best
portfolio of questions to appear on the examinations.
The CFA exam writing team revises examination questions
continuously during a development cycle. Each new version benefits
from review by the COE, CFA exam writing team members, expert and
generalist volunteers, and staff reviewers. During the cycle, hundreds
of hours of review time contribute to improving the examination
questions.
CFA exam writing team members are also responsible for writing
guideline answers, grading keys, and answer justifications, as well as
documenting LOS coverage, reading references, and other supporting
information.
Once the examination is in nearly final draft form, CFA Institute staff
conduct review sessions with charterholders from around the world.
Participants review the questions to ensure that the language is clear,
simple, unambiguous, and free of cultural bias. Reviewers also identify
any investment practices that may be inconsistent with practices in
their regions. This information is used to revise the questions before
the exams are printed.
Level I Examination
The Level I examination format is entirely multiple choice. Multiplechoice questions on the CFA examinations have a long history, dating
back to 1968 when 25 multiple-choice questions first appeared
on the Level I exam. By 1986, 50% of the Level I examination was
multiple choice. The first all-multiple-choice Level I examination was
administered in 1996.
Level I multiple-choice questions are crafted with each of the
incorrect responses (distracters) carefully constructed to represent
common mistakes in either calculation or logic. A Level I examination
consists of 240 questions to be completed in a six-hour time frame.
Sample multiple choice questions are available on the CFA Institute
website.
Levels II and III Item Set Questions
Item set questions were introduced in 2000; since 2005, the
Level II examination consists entirely of item set questions.
Level III consists of constructed response questions (morning
session) and item set questions (afternoon session). Item sets are
organized in groups of six questions that are related to a case or
vignette that describes investment challenges facing individuals
or institutions. Sample item set questions are available on the CFA
Institute website.
Level III Constructed Response Questions
The constructed response (also termed essay) portions of the Level
III examination (morning session) include questions with varying
structures and point values. These questions typically have several
parts related to a case study that describes one or a series of
investment challenges. Each begins with a command word that
corresponds to the command words contained in the curriculum
LOS. The command words used on the examinations are also
available at www.cfainstitute.org.
Constructed response examination questions have changed
significantly throughout the CFA examination’s history. In the early
years, open-ended questions with large point values were common.
For instance, the 1965 Level III examination contained the following
25-minute question:
“The value of a common stock or any other security is what you can
sell it for.” Analyze the above statement and explain fully how you
would arrive at the value of a common stock.
Today’s CFA examination questions are less open-ended and
have smaller point values in order to sample more of the assigned
curriculum. Some questions are presented with an answer template
to assist candidates in following the logic of the application being
tested and to guide candidates regarding the appropriate length of
answers.
On the early CFA examinations, candidates commonly had options
concerning which questions they had to answer. Candidates could
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
8
select the industry of their choice, the institution of their choice,
or even which of two or three questions from a longer list they
wanted to answer. For example, the 1965 Level III examination gave
candidates the choice of answering either a bond or stock valuation
question. That same examination gave candidates the choice of one
of eight institutions (e.g., investment companies, endowment funds,
or pension funds) as the subject of a question and also asked
candidates to answer a question on the industry of their choice.
Today’s CFA examinations cover all of the topics in the CFA Program
curriculum. Candidates must answer the entire set of questions,
each based on specific readings. This policy is consistent with the
premises that the CFA examination takes a generalist approach
to investment analysis and portfolio management and that all
successful candidates have mastered the same curriculum. One
of the CFA Program’s strengths often cited by employers is that
charterholders are knowledgeable even in investment topics in
which they are not practicing.
Candidates’ responses today require a higher degree of specificity.
Candidates are also given an indication as to how much detail is
required to successfully answer a question. For example, questions
may state, “Discuss three reasons...,” and the candidate will have a
clear indication of how much discussion is necessary. The current
exams differ dramatically from those given in the program’s early
history, properly reflecting the evolution of both investment
management practice and testing techniques used to evaluate that
practice. Constructed response questions (and associated guideline
answers) that have appeared on recent exams are available on the
Candidate Resources section of the CFA Institute website
(www.cfainstitute.org).
Note that guideline answers published by CFA Institute reflect most
of the answers that received high scores on each question. There
may often be more than one appropriate (and full-credit) answer to a
question. All possible approaches that received high scores are not
necessarily included in a published guideline answer. Candidates are
not expected to provide answers as complete and well-written as
the published guideline answers to receive full credit.
In addition, trained CFA Institute employees travel to the larger test
centers to observe testing operations and to ensure that the
administration runs professionally.
CFA Institute strives to produce a fair and equitable testing
environment and to ensure the safety of CFA candidates and
testing personnel. To ensure the integrity of the process, strict
testing policies are enforced. Beginning in January 2011, candidates
must register for the exam with a valid international travel passport.
The information on the passport presented on exam day must
match the registration records. This policy sets forth one global
standard, in the form of a single document that is both
internationally obtainable and recognizable, that allows CFA
Institute to confirm candidates’ identity and to ensure that all
candidates receive identical treatment during the exam day
admission process. Candidates are required to use only approved
calculator models to ensure that no candidates can gain an unfair
advantage by using calculators that have the ability to store text in
memory. Unauthorized personal belongings are not permitted in the
testing room. CFA Institute consults with other respected testing
organizations in an effort
to improve policies and practices. Security and testing policies
will continue to evolve. You can review testing policies on the CFA
Institute website (www.cfainstitute.org).
The CFA Institute Professional Conduct Program investigates matters
involving alleged violations of the CFA Program rules and regulations.
Disciplinary sanctions are imposed on candidates who are found
to have violated these rules and regulations, such as writing past
time, using an unauthorized calculator or scratch paper, and giving or
receiving assistance during the examination. If a candidate is found
to have violated the rules and regulations, the imposed sanction may
range from a private reprimand to prohibition from further
participation in the CFA Program.
Once the examinations have been successfully administered, they
are collected, reconciled, and returned to CFA Institute for processing
and grading. It may take as long as two weeks for all exams to be
returned because of complex customs procedures in some countries.
Examination Administration
Grading
Examination Administration
Immediately upon receipt at CFA Institute, all exam materials are
reconciled with attendance rosters and prepared for the grading
and quality control processes. The first step in the grading process
is the machine grading of all multiple-choice and item set exam
answer sheets. This process also encompasses a number of quality
controls, such as checking damaged papers and independently
auditing a random sample representing approximately 5% of
candidates’ answer sheets.
Once the COE and CFA exam writing team finish writing the CFA
examinations, the examination books are produced following a
secure process developed by CFA Institute and its vendors. After
printingandbeforedistribution, CFA Institute staff performs quality
control checks on examination books to ensure the quality of the
printing process. The books are then distributed globally and securely
stored until exam day.
CFA Institute enlists the help of professional testing personnel
around the world who are responsible for selecting and training
examination proctors to administer the test with the utmost attention
to the security and integrity of the examination process.
Another quality control during this period is the investigation of all
comments and complaints related to the examinations. The staff
reviews the exam questions and answers, curriculum readings, and
exam results related to each comment or complaint. Special
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
9
focus is given to reviews under any of the following circumstances:
multiple similar complaints, exam results suggesting more than
one correct answer, or exam results that otherwise suggest that a
question was confusing or unfair. If, after investigation, a question is
determined to be confusing or unfair, results are adjusted to credit
all answers. If two answers are determined to be correct, both
answers are credited.
In recent years, more than 600 charterholders from around the
world have spent one to two weeks in Charlottesville, grading the
constructed response portions of the Level III CFA examination.
CFA charterholders’ involvement in grading the examinations is
one of many checks and balances in the CFA Program designed to
ensure that each candidate receives fair and consistent evaluation.
Examination books identify candidates only by CFA Institute ID.
Graders do not know the name or even the geographic origin of
candidates whose examinations they evaluate.
To ensure that each grader has adequate time to prepare, graders
receive their question assignments, appropriate curriculum
materials, and draft guideline answers and grading keys well in
advance of the grading session. This process allows graders to
suggest changes to the guideline answers and grading keys before
grading begins.
Graders are separated into teams that include graders with varying
degrees of grading experience. Each team grades a specific
question part(s), which brings a high level of specialization to the
process. Each team is led by a captain, an assistant captain, and
senior graders. These team leaders review all suggestions made
by the graders before grading. They also review a large sample of
actual candidate answers to ensure that the grading keys credit all
valid responses and award partial credit consistent with the relative
importance of the information provided by the candidate. After
extensive review and trial application, grading coordinators approve
the final grading keys that will be applied to the assigned question.
Graders are trained in evaluation procedures and techniques.
Grading coordinators oversee the grading process, ensuring that
all grading teams treat candidates consistently across questions.
Once grading begins, captains and assistant captains spend much
of their time reviewing graders’ work to ensure points are awarded
accurately and consistently across the team.
Quality control is built into all aspects of the grading process.
Access to the examination grading center is closely monitored. Only
graders are permitted to check out examinations, and they may
grade only their assigned question. Team captains and coordinators
receive detailed timely statistical reports to ensure consistent and
accurate grading.
Grading coordinators, team captains, and CFA Institute staff
meet daily to ensure consistent application of grading policies.
Coordinators are CFA charterholder members with extensive
experience in both exam development and grading.
After all examinations have been fully graded during the first week,
approximately half of the exams are graded again in their entirety
in a second round by a different grader than was used in the first
round. The purpose of re-grading is to ensure marginal candidates,
those whose papers fall within a large range that encompasses
possible minimum passing scores, are afforded every opportunity
to pass the examination. Following the re-grading of these exams,
a third round of grading occurs to determine the final score for
question parts where the scores do not match between the first
two rounds of grading.
Standard Setting
Since 1996, CFA Institute has used the modified Angoff standard
setting method to assist the Board of Governors in establishing the
minimum passing score (MPS) on each CFA examination. The Angoff
method is the best-known and most widely used standard-setting
method among professional credentialing programs.
The Angoff method has been used as a criterion for establishing
the MPS for the Level I examination since 1996. CFA Institute retains
independent psychometricians to conduct standard-setting
workshops for each exam.
Standard setting involves a large and diverse group of CFA
charterholders. The lead psychometrician divides participants
into two smaller groups for each level of the examinations. Each
participant reviews the entire exam, question by question, and makes
an independent judgment on the expected performance of a justcompetent candidate on each question.
Participants evaluate the entire examination a second time after
reviewing “impact data” and overall actual candidate performance
on the exam. In the second round, each participant again records
his or her judgment regarding the expected performance of a justcompetent candidate on each question. In this way, the participants
consider both difficulty of the examination content and actual
candidate performance. The workshops result in a report that
presents a score range judged as the appropriate competence
level in the subject matter from the perspective of demographically
representative groups of charterholders. The size of the group, its
diversity, and its reliance on independent judgments contribute to the
power of the standard-setting results.
Setting the Minimum Passing Score
CFA charterholder members on the CFA Institute Board of Governors
who have no conflicts of interest set the MPS to be applied to
each examination. The board convenes approximately six weeks
following the exam to determine the Levels I and II MPS and again
approximately seven weeks after the Level III exam to determine its
MPS. Although pass rates may fluctuate, the board’s objective is to
require a consistent standard competency level across years.
The board assesses the examinations’ difficulty and the candidates’
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
10
demonstrated competency. Board members consider all available
information relevant to these factors. The results of the standardsetting workshops are the most important input. From the board’s
perspective, standard setting is a systematic process that adheres
to sound psychometric principles, providing the board with a valid
range within which to establish the MPS. The board’s report “Guiding
Principles for Setting the CFA Examination Minimum Passing Score”
is available on the CFA Institute website (www.cfainstitute.org).
CFA Institute staff and the board continue to monitor advances in
the psychometric field to augment the information currently used to
set the MPS..
Pass Rates
Following the board’s MPS decision, CFA Institute generates results
and conducts a variety of quality control measures before results are
released to candidates. This process ensures that the MPS is set in
accordance with best practices in testing and that every candidate’s
exam is processed with appropriate due diligence.
Pass rates, as shown in Figure 4, are calculated from candidates
who actually sat for the examination. Approximately 25% of enrolled
candidates who register do not sit for the examination (are no-shows)
each year.
Falling pass rates reflect the expansion of the candidate pool and
related shifts in academic and professional experience, the steady
evolution of the CBOK supporting the investment management
profession, and candidate preparation practices.
examination). Candidate results are emailed and are available in
a secure section of the CFA Institute website. CFA Institute posts
scores as “pass” or “fail” and provides candidates with an indication
of performance across topic areas or questions to help identify
strengths and weaknesses. Candidates learn whether they scored
less than 50% of the points, between 50% and 70% of the points, or
more than 70% of the points by topic.
Beginning with the June 2008 results, CFA Institute provided
unsuccessful candidates with additional information to help them
decide whether to continue to pursue the CFA designation. The
total number of unsuccessful candidates at each level is divided
into 10 groups or score bands so that candidates can see how they
performed relative to all unsuccessful candidates.
The highest score bands indicate proximity to the MPS. Not
wanting to invite comparisons of performance within or across
exam administrations, CFA Institute does not release the MPS or
individual scores. The examination’s primary objective, as with most
professional credentialing and licensing programs, is to provide
candidates the opportunity to demonstrate that they meet the
standard established for competency in the profession.
Following the release of exam results, candidates who did not pass
have the option to have their exams retabulated. In the exam score
retabulation process, CFA Institute staff manually verifies scores were
recorded and added correctly.
Candidates receive examination results in late July or early August
(for the June examination) and late January (for the December
FIGURE 4
PASS RATES 2000-2015
LEVEL I
LEVEL II
LEVEL III
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
11
We hope that you agree the standards and rigor of the CFA Program
have been maintained and even enhanced through the years.
The stakes for the program are higher than ever because the CFA
charter has become a de facto condition of employment in many
investment management organizations.
Regulatory authorities also recognize the value of the CFA charter.
Examples include authorities in Australia, Brazil, Canada, Germany,
Hong Kong, the Netherlands, South Africa, the United Kingdom, and
the United States. The Securities and Futures Commission of Hong
Kong has recognized the passing of Level I of the CFA Program
as providing an exemption from several modules of its licensed
representative exams. The Financial Conduct Authority (FCA) in
the United Kingdom has recognized Level I of the CFA Program in
combination with the Investment Management Certificate (IMC),
or Level III with the IMC Unit 1, as satisfying the retail distribution
review (RDR) requirements. All of the state securities commissions
in the United States that require an investment adviser licensing
examination grant CFA charterholders a blanket exemption, and the
CFA designation is one of only a few designations awarded such
status.
In addition to regulatory recognition, educational and professional
recognition also enhance the value of the charter. The UK National
Academic Recognition Information Centre (UK NARIC) benchmarked
the CFA Program and CFA charter as comparable with a QCF
Master’s Level 7 qualification within the UK Qualification and Credit
Framework (QCF). UK NARIC is the UK national agency responsible
for providing information, advice, and expert opinion on vocational,
academic, and professional skills and qualifications. Universities
and other qualification programs also recognize the CFA Program.
For example, successful CFA Level II candidates applying for the
Master in Advanced Finance program at the IE Business School in
Future of the CFA Program
The CFA Institute Board of Governors established a clear guiding
principle for governance of the CFA Program on which all decisions will
be made: “Never lower standards, either educational or ethical. Growth
for growth’s sake is not the goal.” This commitment to upholding
ethics, educational rigor, and professional excellence has been
recognized in such publications as the Economist and the Financial
Times. CFA Institute staff and CFA charterholder volunteers involved in
the activities described in this article are committed to upholding fair
and consistent standards for obtaining the CFA charter.
The CFA Program will continue to evolve to meet the changing needs
of the capital markets. We are proud of the CFA Program and its history.
Much of the program’s success reflects the participation of many
charterholders who, along with CFA Institute staff, specify the CBOK,
develop the curriculum and examinations, grade the examinations, and
recommend the passing standards for the examinations to the Board
of Governors. CFA Institute welcomes all inquiries and suggestions
regarding the CFA Program.
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
12
v.3.0
ulatory, Professional, and Educational Recognition
Spain can waive the requirement to submit GMAT or GRE scores. The
Professional Risk Manager program recognizes the CFA Program,
and for charterholders, it waives the first two exams in its fourexam program. As with regulatory recognition, these educational
and professional waivers are a direct member benefit.
© 2016 CFA Institute. All rights reserved.
Regulatory, Professional, and
Educational Recognition
THE CFA PROGRAM | WHERE THEORY MEETS PRACTICE
13